Tesla nearing limit of $7,500 federal tax credits

Adding to Elon Musk's headaches this month, Tesla is about to hit the limit on federal tax credits for electric cars. This could effectively raise prices for buyers of the company's critical Model 3.

The tax credits, passed in 2008 as part of the Energy Improvement and Extension Act and signed by President George W. Bush, grant taxpayers who buy an electric car a tax credit designed to offset the additional cost of buying an electric car compared with a conventional car. Full electric cars like Teslas earn a credit of $7,500.

(Other plug-in cars are granted lower credits. The full $7,500 credit also applies to the longest-range plug-in hybrids.)

These tax credits phase out for each automaker after they sell 200,000 electric cars. That means that as a top seller of electric cars, Tesla will be one of the first to lose the tax credits. Based on the company's quarterly reports of production and deliveries, Tesla is rapidly approaching that 200,000-car threshold.

At the end of March, in an investor call when Tesla reported it was building about 2,200 Model 3s a week, the company's sales had totaled 183,801 cars since it introduced the Roadster in 2009.

The company was also building about another 2,200 Model S and Model X electric cars per week. At that rate, it would take Tesla three to four weeks to reach 200,000 sales. It has now been more than eight weeks since that sales call.

Once an automaker sells 200,000 electric cars, its buyers are eligible for the full tax credit for one more quarter. That could carry Tesla through September before prices will effectively go up for most of its customers.

After that, the automaker's customers are eligible for a 50 percent tax-credit for two more quarters, or $3,750, through the first quarter of 2019, and a 25 percent tax-credit for two more quarters after that, through the third quarter of 2019. After that, the federal tax credits for Teslas will be eliminated. Buyers will still be eligible for whatever state or local credits may be offered, however.

As Tesla works to double production of its Model 3 to meet demand from customers who have already made deposits, the accelerated rate only makes it more likely that the company will reach its limit of federal tax credits this quarter.

Buyers who have put a deposit down on the Model 3 expecting to receive the large federal tax credit may be ineligible for it by the time their cars are delivered.

Tesla is not the only automaker reaching the limit on its federal tax credits. General Motors had sold 178,703 electric cars, including the plug-in hybrid Chevy Volt, by the end of the first quarter. GM is selling about 2,600 plug-in cars a month, including the Chevy Bolt EV and the Volt, based on numbers from its last sales call. Combined, they make up about half Tesla's pace, putting GM on track to reach its limit of tax credits at the end of 2018.

Both companies only report sales quarterly, which limits public insight into exactly how many cars they've sold in the middle of a quarter. As of now, Tesla may be the first to sell 200,000 electric cars and reach the limit for federal tax credits.

Green Car Reports reached out to Tesla for comment on this report, but had not heard back before publication. We will update this story with the company's response if we receive one.